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North Carolina lawmakers and Attorney General Roy Cooper are opposing the reintroduction of payday lending in the state.

N.C. Legislative Black Caucus Chairman Floyd McKissick has written Birmingham, Ala.-based Regions Financial Corp. President and CEO O.B. Grayson Hall to demand the bank end its Ready Advance loan program in the state.

Regions’ payday loan program has drawn the attention of consumer activists who allege the steep interest rates trap low-income borrowers in a cycle of debt. N.C. law bans payday loan shops or Internet services, but federal law allows banks to make loans based on laws in their home state.

“The effective interest rates on these loans drastically exceed the long-standing interest and fee limits on loans under $10,000 in our state,” McKissick wrote. “High-cost, short-term balloon loans like these sharply increase the financial distress of families under economic strain, and for this reason the legislature has chosen to prohibit them in our state. I therefore call upon you to stop offering these loans in North Carolina.”

Cooper and 40 other state attorneys general have urged congressional leaders to stop bills they contend would weaken states’ ability to check so-called predatory lending schemes like payday loans, car title lending and prepaid credit cards.

“Payday loans trap borrowers in an endless cycle of debt, and that’s why we fought so hard to end payday lending in North Carolina,” said Cooper, who advocated shutting down payday shops a decade ago. “We have a long history of standing up for consumers and successfully fighting predatory loans in our state, and Congress needs to respect our decision to ban high-interest loans.”

An N.C. law passed in 2001 effectively shut down payday lenders, with the last of those businesses closing in 2006, but commercial banks can provide the same service because of a federal loophole that allows banks to ignore state laws. Ready Advance customers must pay back the loans – which have a credit limit of $500 – within 10 days using a bank account with direct deposit. Regions charges $1 in fees for every $10 advanced and the entire balance is repaid upon the next direct deposit.

“If the amount of the direct deposit is not enough to repay 100% of the outstanding balance,” according to the bank’s website, “Regions will continue to repay the remaining outstanding balance from subsequent direct deposits until the outstanding balance is paid in full.”If the loan isn’t repaid within five weeks, the outstanding balance is withdrawn from the checking account at a 21 percent annual rate, with potential overdraft fees applied.

A second repayment option allows borrowers to repay loans in installments at the 21 percent annual rate on the outstanding balance in addition to the 10 percent cash advance fee. “Your installment payment will be 50% of the outstanding balance or $100, whichever is greater,” according to Regions’ website.

“Regions markets these loans as help for occasional emergency cash needs,” McKissick wrote. “However, families facing an income short-fall on the day the loan is made are highly likely to be short of cash at their next payday, when the loans plus fees and/or interest are due.”

A survey by Pew Charitable Trusts found African Americans are more than twice as likely to use payday loans compared to other ethnic groups. Nearly a quarter of payday borrowers are seniors whose primary source of income is Social Security.

“We encourage you to respect our state lending laws and avoid practices that the legislature, our North Carolina Commissioner of Banks and our North Carolina Attorney General have all determined to be harmful to our families and our economy,” McKissick wrote.